Operations Management:
Process Analysis and Applications Module


Operational Measures: Time T, Inventory I, Throughput rate R
Capacity and Flow Time Analysis
» Pizza Pazza / Bariatric Surgery
» Levers for Improvement

Multi-product Capacity Management and Investment
» Joint Marketing & Production Decisions
» Optimal Capacity Investment
S. Chopra/Operations/Process Analysis & Apps
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Operational Performance Measures
 How
to measure and decrease flow times?
 How to measure and increase throughput?
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Process Architecture is defined and
represented by a process flow chart:
Process = network of activities performed by resources
1. Process Boundaries:
– input
– output
2. Flow unit: the unit of analysis
3. Network of Activities & Storage/Buffers
– activities with activity times
– routes: precedence relationships (solid lines)
4. Resources & Allocation
5. Information Structure & flow (dashed lines)
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Pizza Pazza Flow Chart
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Operational Measure: Flow Time
Driver: Activity Times
 (Theoretical)
Flow Time

Critical Activity

Flow Time efficiency
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Most time inefficiency comes from waiting:
E.g.: Flow Times in White Collar Processes
Industry
Process
Average Flow Theoretical Flow Flow Time Efficiency
Time
Time
Life Insurance
New Policy
Application
72 hrs.
7 min.
0.16%
Consumer
Packaging
New Graphic
Design
18 days
2 hrs.
0.14%
Commercial Bank
Consumer Loan 24 hrs.
34 min.
2.36%
Hospital
Patient Billing
10 days
3 hrs.
3.75%
Automobile
Manufacture
Financial
Closing
11 days
5 hrs
5.60%
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Levers for Reducing Flow Time

Decrease the work content of critical activities
– work smarter
– work faster
– do it right the first time
– change product mix

Move work content from critical to non-critical activities
– to non-critical path or to ``outer loop’’

Reduce waiting time.
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Operational Measure: Capacity
Drivers: Resource Loads
 (Theoretical)
Capacity of a Resource

Bottleneck Resource

(Theoretical) Capacity of the Process

Capacity Utilization of a Resource/Process =
throughput [units/hr]
capacity [units/hr]
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A Recipe for Capacity Measurements
Resource Unit Load
Resource Capacity
(time/job) Unit Capacity # of units Total
Process Resource
Capacity Utilization*
* assuming system is processing at full capacity
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Bariatric Surgery : Flow Chart
40% quit
Cash
Initial
phone call
5×1.2=6 min.
receptionist ,
patient
20% callback
Initial
Consultation
30 min.
surgeon
patient
Preliminary
Test
Request
10 min.
surgeon
patient
Test 1
Appointment
5 min.
receptionist
patient
Test
60 min.
nurse
patient
Delay
Cash /
Insurance
Insurance
10% Quit
Insurance Yes (50%)
Approval
Med. Nec.
Letter
20 min.
surgeon
patient
2 days
patient
3 wks
patient
5 min.
receptionist
patient
5 min.
receptionist
patient
90%
Quit
Or not
Appointment
Visit 3
More tests
(50%)
10 min.
nurse
patient
Test 2
Appointment
20 min.
surgeon
patient
Scheduling
Patients arrive
15 min.
surgeon
patient
Second Visit
30 min.
nurse
patient
Test 2
2 days
patient
20% Deny
60 min.
Surgeon
Patient (x6)
2 wks
patient
Delay
15 min.
surgeon,
anesthetist
Seminar
Team
Prep
Surgery
Cleaning
15 min.
2 Nurse
Surgery room
Insurance
80% approve
Approval
Surgery
Prep
30 min.
nurse
patient
Nurse Care
120 minutes
STAY (from arrival)
2 days
Patient, room
Follow up
30 minutes
nurse
x%
75 min.
2 nurses, surgeon, anesthetist
Patient , surgery room
4 days
Patient, room
STAY (from arrival)
Nurse Care
240 minutes
S. Chopra/Operations/Process Analysis & Apps
Surgery
Laparoscopic
Complete Flow Chart for Bariatric Patients
Surgery Open
1-x%
45 min.
2 nurses, surgeon, anesthetist
Patient, surgery room
10
Bariatric Clinic Capacity – Open Surgeries &
Cash Payment
Cash-Open
Resource
Load/patient Patients/hr Hrs/day Patient/day Patients/wk resources Capacity/wk
receptionist (min)
20
3.00 12.00
36.00
180.00
1
180.00
surgeon (min)
150
0.40 12.00
4.80
24.00
4
96.00
nurse surgery (min), team of 2
60
1.00 12.00
12.00
60.00
2
120.00
nurse care (min)
370
0.16 12.00
1.95
9.73
10
97.30
room-in (days)
4
1.25
63
78.75
room-out (min)
80
0.75 24.00
18.00
126.00
2
252.00
surgery room (min)
60
1.00 12.00
12.00
60.00
2
120.00
anesthesist (min)
60
1.00 12.00
12.00
60.00
2
120.00
Capacity
78.75
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Bariatric Clinic Capacity – Laparoscopic
Surgeries & Cash Payment
Cash-Laparoscopic
Resource
Load/patient Patients/hr Hrs/day Patient/day Patients/wk resources Capacity/wk
receptionist (min)
16
3.75 12.00
45.00
225.00
1
225.00
surgeon (min)
180
0.33 12.00
4.00
20.00
4
80.00
nurse surgery (min), team of 2
90
0.67 12.00
8.00
40.00
2
80.00
nurse care (min)
250
0.24 12.00
2.88
14.40
10
144.00
room-in (days)
2
2.50
63
157.50
room-out (min)
80
0.75 24.00
18.00
90.00
2
180.00
surgery room (min)
90
0.67 12.00
8.00
40.00
2
80.00
anesthesist (min)
90
0.67 12.00
8.00
40.00
2
80.00
Capacity
80.00
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Bariatric Clinic Capacity – Open Surgeries &
Insurance Payment
Insurance- Open
Resource
receptionist (min)
surgeon (min)
nurse surgery (min)
nurse care (min)
room-in (days)
room-out (min)
surgery room (min)
anesthesist (min)
Load/patient Patients/hr Hrs/day Patient/day Patients/wk resources Capacity/wk
26.60
2.26 12.00
27.06
135.31
1
135.31
198.00
0.30 12.00
3.64
18.18
4
72.73
60.00
1.00 12.00
12.00
60.00
2
120.00
402.59
0.15 12.00
1.79
8.94
10
89.42
4.00
1.25
63
78.75
112.59
0.53 24.00
12.79
63.95
2
127.89
60.00
1.00 12.00
12.00
60.00
2
120.00
60.00
1.00 12.00
12.00
60.00
2
120.00
Capacity
72.73
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Bariatric Clinic Capacity – Laparoscopic
Surgeries & Insurance Payment
Insurance-Laparoscopic
Resource
receptionist (min)
surgeon (min)
nurse surgery (min)
nurse care (min)
room-in (days)
room-out (min)
surgery room (min)
anesthesist (min)
Load/patient Patients/hr Hrs/day Patient/day Patients/wk resources Capacity/wk
26.6
2.26 12.00
27.06
135.31
1
135.31
228.0
0.26 12.00
3.16
15.79
4
63.15
90.0
0.67 12.00
8.00
40.00
2
80.00
282.6
0.21 12.00
2.55
12.74
10
127.39
2.0
2.50
63
157.50
112.6
0.53 24.00
12.79
63.95
2
127.89
90.0
0.67 12.00
8.00
40.00
2
80.00
90.0
0.67 12.00
8.00
40.00
2
80.00
Capacity
S. Chopra/Operations/Process Analysis & Apps
63.15
14
Levers for Increasing Process Capacity

Decrease the work content of bottleneck activities
– work smarter, work faster
– do it right the first time
– eliminate non-value added work from bottlenecks
» reduce/eliminate setups and changeovers
– synchronize flows to & from bottleneck
» reduce starvation & blockage

Move work content from bottlenecks to non-bottlenecks
– to non-critical resource or to third party

Increase Net Availability
–
–
–
–
work longer
increase scale (invest)
increase size of load batches
eliminate availability waste
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Increasing Process Capacity in The
Goal
 “is
to increase the capacity of only the bottlenecks”
– “ensure the bottlenecks’ time is not wasted”
» increase availability of bottleneck resources
» eliminate non-value added work from bottlenecks

reduce/eliminate setups and changeovers
» synchronize flows to & from bottleneck

– “
reduce starvation & blockage
the load of the bottlenecks (give it to non-bottlenecks)”
» move work from bottlenecks to non-bottlenecks
» need resource flexibility
–
unit capacity and/or
#of units.
» invest
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Other factors affecting Process Capacity

Batch (Order) Sizes

Product Mix
 other
managerial policies ...
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Product Mix Decisions:
Open or Laparoscopic Surgery
Revenue per open surgery:
Variable Cost of Materials:
$15,000
$1,000
Revenue per Laparoscopic surgery:$18,000
Variable Cost of Materials:
$2,000
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Product Mix Decisions
Open and Laparoscopic have exactly the same process. The
only difference is in surgery (laparoscopic takes 30 minutes
extra) and in the rooms (laparoscopic uses rooms for 2 days
whereas open uses rooms for 4 days.
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Product Mix Decisions
Margin per Open surgery = $14,000
Margin per Laparoscopic surgery = $16,000
Margin per week from Open surgery = 72.72*(15,000
- 1,000) = $1,018,055 / week
Margin per week from Laparoscopic surgery =
63.15*(18,000 - 2,000) = $1,010,400 / week
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Learning Objectives: Process Analysis


Manage better with the three key operational measures and an
inter-functional macro process view of the organization
Process measures:
– Flow time  manage critical activities
– Capacity  manage bottleneck resources

Levers for improving
– Flow time  manage critical activities
– Capacity & Throughput

Many marketing and financial decisions are linked to process
– Effect of product mix decisions on process capacity
» marginal contribution per unit of bottleneck capacity used
– Bottleneck may shift on adding capacity
 diminishing returns to capacity investment
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